African Housing Finance salutes TMRC for lowering mortgage interest

THE government’s decision to establish Tanzania Mortgage Refinance Company Limited in 2010 has enabled the lowering of mortgage lending interest rates to about 11.5 percent currently from over 22 percent then.

PSPF Commercial Towers in Dar es Salaam are a good example of a real estate investment by a pension fund. File photo.

In a recent report, South African based Centre for Affordable Housing Finance in Africa said had there not been TMRC, mortgage interest rates would have hovered to 25 percent currently.

“The establishment of TMRC, under the Housing Finance Project, and its subsequent operations has had a constructive impact on interest rates. TMRC member banks can currently borrow from the TMRC at 11.5 percent and are therefore able to extend mortgage loans to their customers at lower mortgage interest rates than those prevailing in the market (between 19% and 22% in 2010) thereby positively impacting on mortgage affordability in the country,” CAHFA said.

It further noted that by regional standards, the impact of the TMRC seems marginal, since the interest rate in other East African members is about the same. The report however pointed out that such interest rates restricts the amount of long term funding available for mortgage lenders in the sector.

CAHFA further stated that the country’s pension sector has been instrumental in organizing long-term funds for the housing sector noting that even with the highest number of banks in the East African region, their mortgage loan portfolio is much smaller compared to what the funds invest.

“At 57 banks, the country’s banking industry has been at the forefront in competing for pension assets through attracting highly priced deposits from the registered pension funds. Pension funds account for 6.4 percent of bank deposits,” the report noted.

According to Social Security Regulatory Authority, a maximum of 35 percent of pension assets may be placed with financial institutions as deposits while an additional 30 percent of pension assets may be invested directly in the real estate sector.

The report forms part of The Centre for Affordable Housing Finance’s Investor Programme which aims at quantifying the breadth of investment activity with respect to housing and housing finance across Africa, and to establish a mechanism to track this on an ongoing basis.

“This project has collected data and highlights gaps and opportunities in the investment landscape. With the aim of stimulating greater investment in affordable housing and connecting investors with potential investments, the report profiles investors and investment instruments with the greatest impact on the housing finance market within the EAC Region,” CAHFA noted.

Growing financial sector experience and increasingly sophisticated financial instruments are driving investor interest in African real estate. This includes new market opportunities related to a rising urban middle class, an increasingly localized construction material industry and innovations in housing finance such as the emergence of Real Estate Investment Trusts and mortgage liquidity facilities across Africa.

“However, a key barrier to this growth remains the chronic lack of rigorous data on the breadth and character of financial infrastructure investment. This is particularly true for the housing sector as stimulating targeted investments requires highly differentiated data that illustrates market segmentation,” the report added.

In providing market intelligence that makes the case for investment in underserved markets (segmenting and quantifying the demand side; and scoping, understanding and tracking the supply side), we can support a better policy environment and increased private sector activity in affordable housing markets. In this way, we catalyse scale interventions, the CAHFA report stressed.

Without this data, targeted interventions become challenging and result in unresponsive housing finance packages, the high occurrence of Non-performing loans (NPLs) and poor uptake of new residential developments, the report concluded.

Outreach and Promotion Manager from TECC, Abdul Juma (C) speaking during the launching of the 5th phase of VIA Pathways to Work Program in Dar es Salaam yesterday. Second right is John Mwakasege from PTF and other officials from partner institutions involved in the program. Photo: courtesy of TECC.